Tribunal directs adjustments on transfer pricing, royalty payments, Section 80IB, CENVAT credit, interest charges.

The Tribunal partly allowed both appeals, directing the AO to verify and make necessary adjustments on various issues. The Tribunal emphasized the need for proper analysis in transfer pricing adjustments, including impact assessment on profitability and benchmarking royalty payments. It also clarified the treatment of losses and profits under Section 80IB, instructed adjustments to closing stock due to unutilized CENVAT credit, and directed the allowance of actual expenses like site restoration costs. Additionally, the Tribunal addressed interest charges under Sections 234B, 234C, and 234D, and issues related to depreciation on software expenses and TDS credit.

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Issues Involved:
1. Transfer pricing adjustments.
2. Deduction under Section 80IB.
3. Addition to closing stock on account of unutilized CENVAT credit.
4. Disallowance of certain expenses.
5. Charging of interest under Sections 234B, 234C, and 234D.
6. Other corporate tax issues.

Detailed Analysis:

1. Transfer Pricing Adjustments:

- Purchase of Raw Material:
The assessee's international transactions for the purchase of raw materials were scrutinized. The TPO rejected Sudarshan Chemicals as a comparable due to its loss-making status and under-utilization of capacity. The DRP upheld this rejection. The Tribunal noted that merely being loss-making is not a valid reason for exclusion if the comparable satisfies functional analysis. The Tribunal directed the AO to verify the impact of reduced pricing of the product "Topik" on profitability and make necessary adjustments.

- Royalty Payments:
The assessee paid royalties to its AE for technical know-how and trademarks. The TPO disallowed these payments, stating no benefit was received. The DRP confirmed this. The Tribunal held that the royalty payment cannot be nil and directed the TPO to use CUP for benchmarking. Additionally, the Tribunal noted that if the operating profit margin in the seed business is higher than comparable companies, no adjustment should be made.

2. Deduction under Section 80IB:

- Reduction of Other Income:
The AO reduced other income from profits eligible for deduction under Section 80IB. The Tribunal upheld the disallowance of interest on employee loans but remanded the issue of sale of scrap for verification.

- Set-off of Losses:
The AO set off losses of one 80IB unit against profits of another. The Tribunal, following the Delhi High Court's decision in Sona Koyo Steering Systems Ltd., held that each unit should be treated independently, and loss-making units should not affect the deduction of profit-making units.

3. Addition to Closing Stock on Account of Unutilized CENVAT Credit:

- The AO added unutilized CENVAT credit to the closing stock. The Tribunal directed the AO to make corresponding adjustments to the opening stock, purchases, and sales, following the Bombay High Court's decision in Mahalaxmi Glass Works Pvt. Ltd.

4. Disallowance of Certain Expenses:

- Repairs and Maintenance:
The AO disallowed certain repairs and maintenance expenses, treating them as capital in nature. The Tribunal dismissed these grounds as not pressed by the assessee.

- Site Restoration Expenses:
The AO did not allow actual site restoration expenses. The Tribunal directed the AO to allow the actual expenses incurred, noting that similar expenses were allowed in subsequent years.

5. Charging of Interest:

- Under Sections 234B, 234C, and 234D:
The AO charged interest under Sections 234B, 234C, and 234D. The Tribunal directed the AO to recompute the interest based on the outcome of the appeal and proper credit of TDS.

6. Other Corporate Tax Issues:

- Depreciation on Software Expenses:
The AO did not grant depreciation on software expenses disallowed in the previous year. The Tribunal directed the AO to grant the depreciation.

- Non-granting of TDS Credit:
The Tribunal directed the AO to verify and grant the correct credit of TDS.

Conclusion:
Both appeals were partly allowed for statistical purposes, with directions for verification and recomputation by the AO on various issues.

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